Is Oil On Its Way To $80? – OIR 210918

Bullish news on both the supply and demand
side sent oil prices up again on Friday morning, with Brent falling back after
flirting with $80.

Friday,
September 21st, 2018

Oil prices edged up this week on lost supply from Iran and Venezuela, although
those supply concerns are somewhat offset by worries over demand. OPEC
downgraded demand while the IEA said in a report that supply outages are
“tightening up” the oil market. With Iran sanctions less than two months away,
“we are entering a very crucial period for the oil market,” the IEA said.

Oil market remains “fragile,” Russian
energy minister says. Russia’s energy minister Alexander Novak said that the global oil market remains “fragile” because of production
declines and geopolitical unrest. “This is huge uncertainty on the market – how
the countries, which buy almost 2 million barrels per day of Iranian oil will
act. Those are Europe, Asia Pacific region ... There is a lot of uncertainty.
The situation should be closely watched, the right decisions should be taken,”
Novak said. He said Russia could step in if the market needs more supply.
“Russia has potential to raise production by 300,000 barrels (per day)
mid-term.”

U.S. shale companies increased hedging for
2020. U.S.
shale companies took advantage of relatively high oil prices in the second
quarter to lock in hedges beyond 2019, according to the Houston Chronicle and Wood Mackenzie. Permian shale
drillers increased 2020 hedging by 431 percent in the second quarter of this
year, an indication that E&Ps are worried about pipeline bottlenecks
stretching beyond 2019. WoodMac says the hedging activity that far out is
unusual. The risk of hedging is that some companies could eliminate upside
exposure if pipelines are completed on time and oil prices rise.

OPEC lowered demand
forecast slightly. OPEC cut its 2019 oil demand forecast because of economic headwinds. The 1.41
mb/d demand growth forecast is 20,000 bpd lower than last month’s figure.
“Rising challenges in some emerging and developing economies are skewing the
current global economic growth risk forecast to the downside,” OPEC said in the
report.

Hurricane could affect
natural gas production. Hurricane Florence is battering the
coast of North and South Carolina, but there is very little fallout expected
for the oil market since no oil refineries or upstream production facilities
are located in those states. But if the Hurricane travels further inland into
the Appalachian region, it could curtail shale gas production. Platts Analytics
says that there is potential for the disruption of 2 billion cubic feet per
day of supply over the next several days.

Basra violence flares up
again. The protests and riots in Iraq’s oil-rich southern
region are flaring up again, potentially posing a threat to the country’s
record oil export levels. "We've seen protests around facilities and
threats being made against oil companies. Some companies have taken their foreign
workers out," Helima Croft, global head of commodity strategy at RBC
Capital Markets, told CNBC. "Production hasn't been hit yet, but if you were to have one
facility go down, you could lose upwards of 700,000 to 800,000 barrels of
production, so it's a big story to watch." She went on to note that the
lack of spare capacity makes such an outage especially worrying. "The problem
with the market right now is we don't have a lot of shock absorbers,"
Croft said. "So we really do have a problem where if we have one more
country experience a supply outage, this market will be very tight and prices
will go materially higher."

U.S. LNG vulnerable to
trade war. An estimated $60 billion of new LNG projects may
not go forward if China goes forward with tariffs on American gas imports,
according to Morgan Stanley. The LNG market is tightening faster than many
thought, and a new wave of prospective LNG projects are getting a lot of
attention. But the U.S.-China trade war could significantly damage the outlook for projects in the
U.S.

Iran using floating
storage again. Iran is storing oil on tankers in the
Persian Gulf as buyers begin to walk away. Between 2012 and 2016, Iran stored
millions of barrels of oil on supertankers because it could not export enough.
That practice is making a comeback, according to Bloomberg. “Iranian exports are falling fast,” Amrita Sen, chief oil analyst at
Energy Aspects Ltd., said in a note to clients. Shipments are “set to average
as little as 1.5 million barrels a day in September according to the
preliminary loading program, compared to around 2.8 million barrels a day of
oil exports in April and May,” she said.

India to cut Iran oil
imports by half. Indian refiners will reportedly cut oil
imports from Iran in September and October, reducing purchases by half relative
to levels from earlier this year, according to Reuters. India imported around 658,000 bpd between April and August, and
Reuters estimates that imports will fall to 360,000-370,000 bpd over the course
of this month and next month. The cuts are significant, but Indian officials
have also told Washington that they cannot take imports down to zero, as requested by the Trump administration.

Digitalization could
save refiners $15 billion. A new report from Wood Mackenzie
finds that artificial intelligence, software and other digital technologies
could save oil refiners around $15 billion a year.

ExxonMobil to spend 500
million pounds on upgrading UK refinery.ExxonMobil (NYSE: XOM) is
planning on spending 500 million pounds to upgrade the UK’s largest oil refinery. The investment would allow
the Fawley refinery on England’s south coast to produce more diesel.

U.S. likely world’s top
oil producer. The U.S. likely surpassed Russia this year to
become the world’s top oil producer, the EIA said.

China aims to replace 20
percent of heavy duty diesel trucks. As China continues its
war on pollution, the government is considering plans to replace about 20
percent of the nation’s heavy duty trucks that run on diesel, according to Reuters. The plans would consist of either using more modern trucks that use a
higher grade of diesel, or electric trucks, or trucks that can use LNG. Details
have not been finalized but the plan is slated to take effect in 2020.